Reverse Mortgage Assets Grew 194% Over Last Year

Equitable Bank, one of Canada’s only reverse mortgage providers, recently issued a statement showing 194% growth in reverse mortgage assets year over year.

It is clear that interest in reverse mortgages is growing. This may be due in part to changes in demographics. Over 30% of Canadians are 55 or older, according to the most recent census.

A recent article in the Globe and Mail pointed out that the rise in popularity of reverse mortgages could also be a result of societal changes brought about by the COVID-19 pandemic. More senior citizens may be looking for ways to stay in their homes longer, instead of opting for more communal living arrangements.

What Is A Reverse Mortgage?

Reverse mortgages provide an opportunity for Canadians 55 years of age and older, who own their homes, to take out loans against the value of their property. They can borrow up to 55% of a home’s equity.

Houses must be in good repair, and the owners must have no other outstanding debt on the property such as a home equity line of credit (HELOC) or a mortgage.

Reverse mortgages don’t require any regular payments. Interest does accrue, but the total value of the loan can be paid off when the home is sold or after the owners have passed away.

Is A Reverse Mortgage Right For You?

Reverse mortgages are best for those with a defined plan, who intend to use the funds strategically.

One example is using a reverse mortgage to purchase an investment property. The income from the rental can be used to pay off the loan and provide valuable cash flow in retirement. A Wilson Team client was able to borrow $210,000 from the value of her $625,000 home to purchase a rental property. As a result, she increased her cash flow while leaving other investments untouched.

Another Wilson Team client used a reverse mortgage to repair the roof on her house and pay her home insurance. This allowed her to stay in her home longer than she believed possible.

Reverse mortgages can also help top up retirement income and cover healthcare costs.

Drawbacks

Like any loan, it is important to ensure this product is right for you before signing on the dotted line. Reverse mortgages do have their drawbacks.

They can have higher interest rates than other types of mortgages, and can cost more up-front. Lenders require a home appraisal and there are start-up fees.

It is also important to remember that the interest on the loan will compound over time. Even though you don’t have to pay off the loan right away, the interest will continue to increase. If you intend to defer payments for a significant time, it could reduce the amount of money that goes to you or your beneficiaries when the home is sold.

Having a reverse mortgage can also complicate matters after death. There is often a limited time-frame for the loan to be repaid after someone passes away. Many estates can take a long time to settle, which could lead to complications for your executor.

Look For Expert Advice

Your situation is unique and financial products like reverse mortgages are complicated. Always be sure to seek out good advice, and make sure you understand all the terms before committing to anything.

If you are wondering if a reverse mortgage is right for you, call us today at 613-440-0134 or 1-855-695-9250. We’re always happy to help.